Page 1 of 147
FINANCIAL MODELING EXAM Wall Street Prep
Practice Version | 2025 Edition
Comprehensive Excel-Based Financial
Analysis & Valuation Assessment
Question 1
Which of the following is NOT a primary financial statement
used in financial modeling?
A) Income Statement
B) Balance Sheet
C) Statement of Retained Earnings
D) Statement of Cash Flows
Answer: C
Rationale: The three primary financial statements are the Income
Statement, Balance Sheet, and Statement of Cash Flows. The
,Page 2 of 147
Statement of Retained Earnings is often a supporting schedule or
part of the equity section, but not a primary statement in modeling.
Question 2
Net income from the income statement flows directly to which
section of the balance sheet?
A) Cash and cash equivalents
B) Accounts payable
C) Retained earnings (within shareholders’ equity)
D) Long-term debt
Answer: C
Rationale: Net income (after dividends) increases retained earnings,
which is a component of shareholders’ equity. The linking formula:
Ending Retained Earnings = Beginning RE + Net Income –
Dividends.
,Page 3 of 147
Question 3
True or False: Depreciation expense is a non-cash charge that
reduces net income but does not affect cash flow.
Answer: False
Rationale: Depreciation reduces net income (non-cash) but is added
back in the operating activities section of the statement of cash
flows because it is a non-cash expense. It does affect cash flow
indirectly through taxes.
Question 4
If a company buys equipment with cash, how are the three
statements affected?
A) Net income decreases, cash decreases, PP&E increases
B) Net income unchanged, cash decreases, PP&E increases
C) Net income decreases, cash unchanged, PP&E increases
D) Net income unchanged, cash unchanged, PP&E increases
, Page 4 of 147
Answer: B
Rationale: The purchase of equipment (capital expenditure) is a
cash outflow in investing activities, so cash decreases. PP&E on the
balance sheet increases. Net income is not directly affected
(depreciation comes later).
Question 5
Which of the following is a source of cash in the statement of
cash flows?
A) Increase in accounts receivable
B) Decrease in accounts payable
C) Increase in accrued expenses
D) Purchase of property, plant & equipment
Answer: C
Rationale: An increase in accrued expenses means the company has
incurred expenses but not yet paid, which increases cash from
FINANCIAL MODELING EXAM Wall Street Prep
Practice Version | 2025 Edition
Comprehensive Excel-Based Financial
Analysis & Valuation Assessment
Question 1
Which of the following is NOT a primary financial statement
used in financial modeling?
A) Income Statement
B) Balance Sheet
C) Statement of Retained Earnings
D) Statement of Cash Flows
Answer: C
Rationale: The three primary financial statements are the Income
Statement, Balance Sheet, and Statement of Cash Flows. The
,Page 2 of 147
Statement of Retained Earnings is often a supporting schedule or
part of the equity section, but not a primary statement in modeling.
Question 2
Net income from the income statement flows directly to which
section of the balance sheet?
A) Cash and cash equivalents
B) Accounts payable
C) Retained earnings (within shareholders’ equity)
D) Long-term debt
Answer: C
Rationale: Net income (after dividends) increases retained earnings,
which is a component of shareholders’ equity. The linking formula:
Ending Retained Earnings = Beginning RE + Net Income –
Dividends.
,Page 3 of 147
Question 3
True or False: Depreciation expense is a non-cash charge that
reduces net income but does not affect cash flow.
Answer: False
Rationale: Depreciation reduces net income (non-cash) but is added
back in the operating activities section of the statement of cash
flows because it is a non-cash expense. It does affect cash flow
indirectly through taxes.
Question 4
If a company buys equipment with cash, how are the three
statements affected?
A) Net income decreases, cash decreases, PP&E increases
B) Net income unchanged, cash decreases, PP&E increases
C) Net income decreases, cash unchanged, PP&E increases
D) Net income unchanged, cash unchanged, PP&E increases
, Page 4 of 147
Answer: B
Rationale: The purchase of equipment (capital expenditure) is a
cash outflow in investing activities, so cash decreases. PP&E on the
balance sheet increases. Net income is not directly affected
(depreciation comes later).
Question 5
Which of the following is a source of cash in the statement of
cash flows?
A) Increase in accounts receivable
B) Decrease in accounts payable
C) Increase in accrued expenses
D) Purchase of property, plant & equipment
Answer: C
Rationale: An increase in accrued expenses means the company has
incurred expenses but not yet paid, which increases cash from
